Andrew Kang, co-founder of Mechanism Capital, believes that L2 is the same as L1 and the lending market, and there will be many cross-chain bridges.
Original title: ” The Layout of Mechanism Capital in the Layer 2 Field “
Written by: Andrew Kang, co-founder of Mechanism Capital Translation: Screen
Mechanism Capital co-founder Andrew Kang recently tweeted and announced the news of Mechanism Capital’s opening of CELR and explained the reasons. He said that Layer 2 is not a winner-takes-all field, and shared Mechanism’s holdings and investment projects in this field.
The content of the tweet is as follows:
1/ We recently opened a $CELR position
There is no doubt that we are in a multi-chain world, and cross-chain bridge projects like Celer Network are very important infrastructure and applications for users.
2/ Every week, billions of dollars of funds flow on the chain, most of which occur through centralized bridges and exchanges, but the current cross-chain through decentralized bridges is showing an upward trend.
3/ As on-chain applications such as Solana, Avalanche, Arbitrum, Fantom, Polygon, etc. begin to take off, there is a need for cross-chain transfer of funds for mining and trading.
This demand is reflected in the increase in the number of transactions and transaction volume on Celer Bridge last month.
4/ Although POA bridges, Rollup exports and CEXs can also do this kind of work, the process requires multiple steps or takes a lot of time. In the field of encryption, time is money.
If you compare the blockchain to a country, these slower bridges can be regarded as freight trains, and the decentralized solution is high-speed railways.
5/ Currently, Celer is running on cBridge v1, and the current transaction volume is only facilitated by TVL of USD 6 million (representing a 300% daily turnover rate).
At present, in the absence of incentives, this level of TVL provides a 45% annual interest rate for the cBridge node, and the fees it charges are the same or lower than other bridges.
6/ In the current HTLC design, liquidity providers must themselves be operating nodes. In cBridge v2, we expect liquidity and network throughput to expand significantly because the commissioned liquidity supply and liquidity mining have been activated.
7/ In the traditional design, LP either performs trustless operations through HTLC (cBridge v1, Connext, etc.), or trusts the validator group (THORChain, Synapse, Ren, Chainflip).
A completely trustless validator group can ensure the security of multiple assets on the chain, which has not been confirmed.
8/ Celer cBridge V2 expands the design scope, allowing LPs to choose the safety assumptions they want to adopt
9/ We believe that Celer will be able to build a moat/brand in this field because they currently provide the most extensive utility in terms of the number and assets of the supported chains. They are currently the only bridge that provides stablecoin and ETH liquidity.
10/ This is not a winner-takes-all field. Like L1, the lending market, etc., there will be many cross-chain bridges. Sometimes the interest rate of one bridge will be better, and sometimes it will be better for other bridges.
11/ Eventually, cross-chain bridge aggregators like xyfinance and Li Finance will appear and route liquidity to different places, just like today’s DEX aggregators and OTC platforms.
12/ The market size of cross-chain interoperability has increased several times. Mechanism Capital has positions in $CELR, $REN, $SYN, and $RUNE, and has invested in these projects Chainflip, Biconomy, sifchain and Connext Network.
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